Nike Stock Jumps 15% Despite 12% Revenue Drop

Nike's stock price surged by 15% on Friday, despite the company reporting a 12% decline in revenue for the fourth quarter. This unexpected rise came after Nike's earnings report, which, although showing a significant drop in earnings per share by 86% to 14 cents, still managed to exceed analyst forecasts by a penny. The revenue, which fell to $11.1 billion, was also higher than the anticipated $10.7 billion.

During the earnings call, CEO Elliott Hill acknowledged that the earnings were "not up to the Nike standard," but expressed optimism about the company's turnaround strategy. He also warned investors about the impending tariff-fueled cost increases, estimated to be around $1 billion. These costs are expected to be mitigated over the next fiscal year through various measures, including reducing U.S. imports of China-produced products, implementing price increases starting in the fall, and cutting corporate costs.

The company's gross margins also took a hit in the fourth quarter, primarily due to increased discounts. Nike's leadership expects these margins to decrease further in the fiscal year 2026, with a more significant impact in the first half. Currently, about 16% of Nike’s footwear imports come from China, a figure that is expected to decrease to the high-single digit range by the end of fiscal year 2026. This reduction will be achieved by reallocating supply from China to other countries around the world.

Despite the challenges, Nike's strategic plans have garnered some positive feedback from analysts. Goldman Sachs analysts, for instance, expressed encouragement following the better-than-expected fourth quarter results and Hill's strategic plans. However, there are still skeptics who question the company's ability to regain its former glory.

The tariff situation remains a significant concern for Nike. President Donald Trump and his Commerce Secretary Howard Lutnick announced a trade deal with China, but 30% tariffs will remain in place. This has led to a shift in Nike's production strategy, with the company looking to reduce its reliance on China for U.S. market production to soften the tariff blow.

In summary, Nike's stock price soared despite a challenging quarter marked by a significant revenue decline and looming tariff costs. The company's leadership remains optimistic about its turnaround strategy, but the road ahead is fraught with challenges, including mitigating tariff costs and regaining consumer favor. Nike's ability to navigate these obstacles will be crucial in determining its future success.